One week after EIP1559 was deployed, 32,000 ETH was destroyed. What other data is worth paying attention to?

At 20:34 on August 5, the Ethereum network block height reached 12,965,000, and the London upgrade was officially launched! This was an upgrade that attracted much attention from the Ethereum community. With the successful completion of the upgrade and the soaring number of ETH destroyed by the network, the Ethereum community was overjoyed. Vitalik and some core community members also smiled in the Youtube live broadcast room, and the fans watching the live broadcast were so excited that they typed "ETH TO THE MOON" on the public screen.

A week has passed since the deployment of EIP1559 went smoothly. Now may be a good time for us to review the changes in various data fundamentals of the Ethereum ecosystem during this period.

「Data insights after EIP1559 deployment」

1. Total Destruction Amount & Value

As of 20:34 on August 12, EIP1559 had been deployed for exactly one week. During this week, the Ethereum network destroyed approximately 32,000 ETH, worth approximately US$100 million.

Such an astonishing amount/value was destroyed in one week, which made many people bullish on ETH.

However, it is important to know that after the deployment of EIP1559, in order to keep the Ethereum block capacity at 15M Gas, miners need to increase the Gas Limit to 30M. Since some miners still did not adjust the parameter in time after the upgrade, the Gas price at that time was slightly higher and the destruction speed was also faster. It is understood that within less than 6 hours after the London upgrade was completed, the network had destroyed nearly 2,000 ETH.

2. Historical trends: ETH destruction, average gas price, ETH issuance rate

Next, let’s take a comprehensive look at the Ethereum network’s “ETH destruction trend”, “average Gas price trend”, and “ETH issuance rate trend” in the week after EIP1559 was deployed.

ETH destruction trend | Source: Dune Analytics

Average Gas Price Trend | Source: Dune Analytics

The trend of the network ETH issuance rate | Source: Dune Analytics

Based on the above figure, we can understand that in this week, generally:

• The network basic fee (Base Fee) fluctuates in the range of 30~60 Gwei; the average Gas fee fluctuates in the range of 35~70 Gwei; combined, it can be seen that the network transaction tip (Tip) fluctuates in the range of 5~10 Gwei.

• The average destruction rate of ETH is about 150 ETH per hour, which is about 3,600 ETH per day. The formula for deriving the destruction amount based on the average basic fee (x Gwei ⇒ x*100 ETH/day) means that the average basic fee is about 36 Gwei.

Eric Conner, Ethereum core developer and co-author of EIP-1559, previously stated that EIP-1559 will reduce Ethereum's annual inflation rate from 4.2% to 2.6%. It is worth mentioning that from the ETH issuance trend chart, we can see that ETH entered a deflationary state at three moments before.

Of course, the main reason is that the skyrocketing network Gas price has caused the block rewards of some blocks to be less than the basic transaction fee destroyed in the block. This instantaneous Gas price is actually mainly caused by the crazy NFT rush.

Taking the first peak in the ETH issuance rate trend chart as an example, it was around 1 a.m. on August 6, that is, within 4 hours after the deployment of EIP1559, the basic fee of the Ethereum network soared to 207 Gwei. According to the traditional fee model, the Gas Price soared to 400 Gwei. The initiator behind this was the crazy pre-minting of the NFT project COVIDPunks. In just one hour, the Gas fee consumed by the COVIDPunks project ranked first in the Ethereum network, spending a total of nearly 663 ETH.

COVIDPunks ranks first in transaction fee consumption | Source: etherscan.io

3. What economic data can we expect from Ethereum after EIP1559?

Speaking of ETH’s inflationary issuance, we have to mention Ethereum 2.0 researcher Justin Ðrake’s “Economic Forecast for Ethereum after the Launch of EIP1559” on August 8:

Justin Ðrake predicted three possible time points for the PoS merger: the optimistic estimate is February 1, 2022, the most likely is March 1, 2022, and the conservative estimate is April 1, 2022.

In addition, combined with the fee destruction of EIP1559 and the relevant economic parameters after the PoS merger, Justin Ðrake predicts that ideally, the upper limit of ETH supply may be 120 million in the future, and under the destruction of EIP1559, ETH is expected to achieve deflation, with the total supply reduced to 100 million in 11 years. And under the combination of PoS issuance and fee income, the annualized rate of return for participating in ETH2.0 staking is expected to be 8.4~19.8%.

Justin Ðrake's predictions on Ethereum's economics after EIP1559 goes live

4. EIP1559 transaction ratio: Not all transactions are based on the EIP1559 fee model?

First of all, we need to know that after the London upgrade, the Ethereum mainnet is still backward compatible with the old transaction format. The Gas price in the old transaction format will be automatically converted to the "base fee + tip" format. The remaining Gas price after paying the base fee will be paid to the miners as a tip. (Regardless of whether so many tips are required, the fees paid in the old model may be higher.)

From the above figure, we can see that the indicator "EIP1559 transaction share" actually fluctuates greatly, but overall, "EIP1559 transaction share" is concentrated in the range of 5~20%, especially in the early days, the share was basically below 5%, and the overall share gradually increased as time went on.

This is not difficult to understand. Due to the backward compatibility of transaction fees, some wallet manufacturers have not yet updated the EIP1559 transaction fee model online. With the follow-up of subsequent updates, the transaction proportion will naturally increase gradually.

「EIP1559 Community Views」

There are both those who welcome and those who oppose the deployment of EIP1559. In addition to miners, who are direct stakeholders, there are also Ethereum community members who start from economic theory (represented by Mr. Jian, the manager of Ethereum enthusiasts).

The core views of supporters are as follows (basically the benefits of EIP1559):

• Optimize user experience: achieve stability and predictability of Ethereum network transaction fees.

• The design of the basic fee can solve the “economic abstraction” problem: in the past, the transaction fee was zero or the fee was not in the form of ETH tokens, and miners could also package it (and compensate miners with bribes in other forms); but under the current EIP1559 fee model, transactions must include a basic fee.

• Improve the ETH token economic model: Previously, ETH was only used as a utility token and played the role of transaction fees in the Ethereum ecosystem. Even though it could indirectly capture some currency premiums due to its status as a base currency, it could not directly capture the value of the Ethereum ecosystem development. However, now the design of destroying the basic transaction fees can improve this defect. The more prosperous the ecosystem, the more ETH transaction fees will be destroyed, forming a virtuous circle and completing the value capture of ETH tokens.

• In short, destroying ETH can reduce the circulation amount and benefit ETH holders, so the community is generally very supportive.

The core arguments of the opponents are as follows:

• Depriving miners of basic fees is essentially a form of compulsory taxation, which is inconsistent with basic economic principles and is a long-term hidden danger.

• EIP-1559 does not actually achieve its vision goals, but instead introduces unnecessary properties to the system.

It is fortunate that there are both positive and negative views, which can prevent us from being too blind. Of course, most people in the community support EIP1559, especially now that EIP1559 has been deployed, so we must at least understand the arguments of opponents and observe and remind ourselves in practice. After all, all of this is an experiment, and no one dares to guarantee 100% success.

「 Recent Insights into the Ethereum Ecosystem 」

1. NFT + GameFi dominates the network

With the popularity of NFT chain games represented by Axie Infinity, the NFT trading market has become active again, and data fundamentals have reached a new historical high. Driven by the NFT + GameFi craze, the Ethereum ecosystem has gotten rid of the previous "bear market atmosphere".

In terms of the price of the currency, as of the time of writing, ETH has risen from the previous low of $1700 to around $3200, an increase of nearly 100%. With the help of the stimulant of about 3600 ETH destroyed every day, the market is optimistic about the future market again.

Since the current NFT trading market OpenSea is basically the main battlefield for NFT transactions (with a market share of 96.3% in July), we can get a glimpse of the popularity of the NFT market from OpenSea’s recent data fundamentals.

In July, OpenSea's monthly transaction volume exceeded US$300 million, the monthly NFT sales exceeded 450,000, and the monthly fee income exceeded US$20 million. These three data indicators are more than twice the average monthly data results in the past.

In August, as of August 11, OpenSea's trading volume has exceeded twice the total trading volume in July. In these 11 days, OpenSea's active users have far exceeded the total active users in July, exceeding 80,000 active users. Currently, the total number of trading users in the OpenSea trading market has exceeded 200,000.

OpenSea monthly trading volume | Source: Dune Analytics

After the deployment of EIP1559, OpeaSea basically ranked first in the ETH destruction contribution ranking list in the Ethereum network.

2. Options bullish & trading sentiment heats up

On the eve of the London upgrade, ETH open option holdings and trading volume increased significantly. In addition, the vast majority of ETH option transactions were call options, and this bullish sentiment was not short-term speculative bullishness driven by EIP1559.

According to Deribit data, on August 6, the trading volume of Ethereum call options with an expiration date of March 25 of the following year soared to 27,870 contracts, with a nominal value of $77,702,396.1. Among them, the largest number of call options with an expiration date of March 25 of the following year with an exercise price of $50,000 and $40,000 were traded, with 12,764 and 12,509 contracts respectively.

According to Alternative data, the market has gradually moved out of the panic sentiment range in the past month and is currently in the greed sentiment range.

Market greed and panic sentiment trends | Source: alternative.me

3. EIP1559, helping Ethereum surpass Bitcoin?

ETH's superior performance in all aspects this year has further strengthened the narrative of "Ethereum surpasses Bitcoin".

The current annual inflation rate of Bitcoin is about 1.8%, while the current inflation rate of Ethereum has dropped to about 2.6%. After the implementation of PoS in the future, it is more likely to achieve a supply cap or even deflation. Moreover, with such a strong ecological bonus of Ethereum, it seems no longer a fantasy for some people that Ethereum will surpass Bitcoin.

However, as of writing, the ETH-BTC exchange rate is fluctuating around 0.07. If Ethereum's market capitalization wants to surpass Bitcoin, the exchange rate must increase by at least 129% to 0.16045.

Conclusion

EIP1559 has been deployed. With the continuous destruction of ETH and the prosperity of the Ethereum ecosystem, will the story of Ethereum surpassing Bitcoin really come true after the transition to PoS merger? (Deepchain)